ARCHIVE: VIEW FROM THE WEST

Western Provinces Face Challenges to Future Competitiveness

Paul Darby, Deputy Chief Economist, Forecasting and Analysis

August 04, 2009

Canada’s economic centre of gravity has shifted west, as the Western provinces have posted strong growth over the past 15 years. But as it emerges from the recession, the West must improve productivity and address labour shortages to maintain its economic strength over the long term, according to Western Canada: Productivity, Competitiveness, and Potential.

Weak productivity growth and labour force shortages, due primarily to an aging population, are the key barriers to future economic growth in the Western provinces.

This Conference Board study1benchmarks each province individually against comparator regions—including geographic neighbours, trading partners, competitors, and global leaders. Each region in the comparison gets a report card–style A-B-C-D grade on indicators chosen to reflect the overarching goal of competitiveness. The study also forecasts each Western province’s economic potential, based on estimates of future labour supply, capital stock, and productivity levels.

Benchmarking: The West Trails Its Peers

Although the Western provinces have been among the leaders in economic growth in recent years, their comparator regions outperform them on most of the five drivers of competitiveness:

labour productivity—the Western provinces trail their U.S. state peers on all labour productivity indicators;

innovation—all the Western provinces score “D” grades on business expenditures on research and development (R&D) and generally are not top performers in government expenditures on R&D;

investment—Alberta, Manitoba, and Saskatchewan rank relatively well on investment in machinery and equipment (M&E);

labour force quality and participation—the Western provinces get mixed grades on education and skills indicators and labour market indicators; and

business environment—venture capital investment in the Western provinces is below that of most U.S. states benchmarked in this report.

Labour Shortages Limit Potential Output Growth

Weak productivity growth and labour force shortages, due primarily to an aging population, are the key barriers to future economic growth in the Western provinces. Potential output—the highest level of real gross domestic product (GDP) that can be achieved while maintaining a stable inflation rate—is expected to slow in British Columbia and Alberta because of chronic labour shortages. In Saskatchewan and Manitoba, potential output is forecast to rise modestly due to higher rates of capital investment. (See Chart.)

1Western Economic Diversification Canada was the lead investor in the study. Funding for the research also came from the British Columbia Ministry of Small Business, Technology and Economic Development; Enterprise Saskatchewan; the Saskatchewan Ministry of Finance; the Manitoba Department of Competitiveness, Training and Trade; and Alberta Finance and Enterprise.